Make It Last – Ep 101 – Tax Tips For Retirees & 7 Deadly Sins Boomers Make In Retirement

Just like everything else in retirement, income taxes need to be preplanned. The first half of the show, Victor will cover how you can be most prepared for your 2019 income taxes, especially with this new tax law. If you want even more information on how you can be most prepared for 2019 tax season, text INVITE to 609-554-5936 and you will receive an invitation to Medina Law Group & Palante Wealthe Advisor’s 2019 Tax Planning Lunch & Learn on April 29th at 12pm.

In the second half of the show, Victor shares some insight on how to can avoid these 7 deadly retirement sins, baby boomers have reportedly been committing.

Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and Certified Elder Law Attorney (CELA®) and Certified Financial Planner™ professional (CFP). Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.

Announcer: Welcome to “Make It Last.” Helping you keep your legal ducks in a row and your nest egg secure. With your host, Victor Medina, an estate planning and elder law attorney and certified financial planner.

Victor J. Medina: Hey everybody, welcome back to Make It Last. I’m you host Victor Medina. I’m so glad that you can join us today for another fun and exciting, whirlwind tour of what it’s like to be in the world of people in financial retirement planning.

I’m your host, and I would tell you I’m excited about today’s show because I’ve got two things that are really going to be topical for you. Good information that you’re going to be able to use as you start to plan your retirement.

We just got through filing our taxes. The deadline was Monday, April 15th, and I hope for your sake you were ahead of that and nobody behind. The IRS and the State Government do not like it when you either don’t file or don’t pay.

I’m glad that we got that done by Monday. You had that extra weekend to work on that on your own if you wanted to. It does get me thinking about the planning that we could be doing for next year.

In fact, one of the things that we’re doing, now you’ve got to be a common client of ours in order to attend, but we are holding a client lunch and learn on April 29th here on our offices. Let me do this, for listeners of the show only, we’re going to open up registration for that client lunch and learn for you.

Because I think it’s so important that you get a head of tax planning that I want to make this available to absolutely everyone. What you can do is text the word invite, I‑N‑V‑I‑T‑E to 609‑554‑5936, that is 609‑554‑5936.

If you text the word invite to that, we’ll chat with you a little bit, get your email address and invite you to our lunch and learn on April 29th, where what we’re going to be talking about is how to proactively plan for income taxes that you’re going to be having to file for next year.

When we think about that there are a few changes that are important for us to know. There’s going to be some changes ‑‑ six tax changes ‑‑ that I want to go through with you that are important that have changed since the most recent tax laws changing.

When you come in through this and trying to figure out what you’re supposed to be doing for the next year, six changes for retirees. Now, during the course of the seminar that we’re going to be hosting at the workshop on April 29th. Here in our offices, by the way ‑‑ I don’t know if I mentioned that ‑‑ but here in Pennington, we’ve got an Educational Resource Center.

It seats about 35 to 40, so you do want to get in early if you’re interested in attending because we are starting to fill up for that already. It’s just a couple of weeks away. In any event, we’re going to be covering more than these things, but on the show, let me just go over a few of them. It’s important for us to understand what these tax law changes are.

You may have had your eyes opened in filing this most recent set of returns, that your taxes went up, down. I don’t know what you expected to happen, but I know that I heard from a lot of clients who got a result that they weren’t really expecting. Most notably that they ended up paying slightly higher taxes overall, or at least they owed more. Let’s go through these in this first segment.

Then, I’ve got a couple of interesting things for you at the second and third segment of this show. We’re first going to cover different tax law changes and how they affect retirees. The Tax Cuts and Jobs Act was signed into law in 2017, and is first reflected on the 2018 returns, which of course, are being filed here in 2019.

If you aren’t already aware, the law is one or the most sweeping tax code reforms in the last three decades. We haven’t had a reform like this in almost 35 years. It’s likely affected all Americans who filed their tax returns. Many of its provisions are certain to affect you as a retiree. Let’s take a look at a few of the most significant.

The first one is that standard deductions are nearly doubling. Deductions are amounts that are subtracted from your income that lower the taxable income. They reduce the total amount of tax that is owed by reducing the total of the taxable income by these deductions. When we apply the amount of tax that is due for that ‑‑ based on the different brackets that are in there ‑‑ it will affect the total amount of tax.

Taxpayers must choose between two different categories. They can do a standard deduction or they can do an itemized deduction. If they choose the standard deduction, they exclude a line item set amount from their income. If they choose to itemize, they subtract a dollar value from each of a deductible category. The new tax law, as I said, nearly doubles the standard deduction.

In the past, a single taxpayer filed with a single deduction of $6,350. That has been increased to $12,000 as a flat amount, so almost double of that.

For married filers who are filing jointly, their standard deduction went from $12,700 to $24,000. In fact, the single and the married doubled itself, from $6,350 to $12,700 but the new one changed from $12,000 to $24,000.

On the face of it, this increase in the standard deduction sounds like it is a complete windfall. It is a hero’s parade waiting to march down the street in celebration. It’s not as far reaching as you may initially think. Because in the past, filers using the standard deduction could also include something called a personal exemption as long as no one else claimed them as a dependent.

If they were there just as themselves, they could use this personal exemption and it would add to the standard deduction. In fact, if we looked at, let’s keep talking about singles. If you were filing with $6,350, you could also take a personal exemption of $40,150, making the total adjustment, $10,650.

When you compare that to the new standard deduction, that’s only an increase of about $1,400. You went from $10,650 to $12,000 as a single filer. There’s a proportional amount for what you’re doing as a married filer.

Here’s the thing. When the new tax law was adopted, the personal exemption, as a deduction, something that you could use was eliminated under the new law. People taking the standard deduction for 2018, or who took them in 2018, or can be taken in the future, they’re not going to have access to also taking the personal exemption any longer.

When we think about that and we look at the math, the jump in the amount of the standard deduction represents more of like an incremental increase from what was previously the standard deduction plus a personal exemption.

Rather than it actually looking like it doubles because we didn’t put in the other math, once we add the two things that were immediately available as line item things, you didn’t have to do anything to earn them, they were automatically given unto you.

The standard deduction and the personal exemption, you didn’t have to justify any expenses for them. They were there on the table for you to take.

When you added those two things together and compare that to the filing standard deduction for the new law, what we find is only about a 12 percent increase for a single filer rather than a near doubling or near 100 percent increase.

It’s a nice increase, 12 percent. It makes up for the elimination of the personal exemption, if that makes sense. In other words, we did away from the personal exemption. The fact, that we have a higher standard deduction means that when you add those two together, this is bigger, so it’s made up for that.

It’s not as awesome as the initial review of the way these things work would lead you to believe. The increase in the standard deduction has the resulting effect of making itemization necessary for a fewer number of people, including retirees.

Because in the past, itemizing as many deductions as possible was the smartest move as long as the total exceeded the amount of the standard deduction plus the personal exemption. Common deductions included things like mortgage interest up to million dollars, a level that the new law has reduced down to $750,000.

The rise in the standard deduction might mean, therefore, that retirees can achieve roughly the same overall deductible, that is the same overall amount that reduces their taxable income by taking the standard deductions they could by itemizing what they were doing.

Once you get an idea of what your itemized deductibles add up to or added up to in the past, you can decide whether or not itemizing still makes sense. The idea, generally, is the practical effect of this new tax law means that, for most people, itemizing their deductions is probably gone because it’s going to be difficult for them with other changes in the law to exceed what is going to be the value of their standard deduction, their new standard deduction.

One of the changes that is in place that’s going to affect this is that the deduction for state and local taxes has been capped. Those are commonly known as SALT taxes or SALT, which is State and Local Tax, S‑A‑L‑T.

It’s a brand new cap on what was widely used as a deduction, because in the past, the total amount of your State and Local Taxes including your property tax, could be deducted. Period, end of the conversation. If you paid State and Local Taxes including property taxes, you could deduct them from your Federal Taxable Income.

Your SALT total made no difference to its deductible status. There was no limit to that. If you lived in a high‑tax state, both high property tax and…Hello, welcome to New Jersey. If you lived in one of those, it can be an extremely valuable deduction, because it puts you on even footing with other people that weren’t paying as much high in tax when they looked in the federal tax goal.

Why is it that people that live in high‑tax states should be negatively impacted as to their federal number? There should be no distinction amongst US citizens about where they live in the amount of federal tax that they pay.

Federal tax is federal tax. Now what the federal government uses that tax money for, you can go argue with the politicians about it. As a matter of equity, just as a matter of fairness, US citizens should be treated equally no matter where they live.

Therefore, this concept of having an unlimited amount of deductible State and Local Taxes made a lot of sense in terms of fairness, but here’s the thing, that it’s been capped. It’s been limited or curtailed, because for 2018 and beyond, the SALT deductions are limited to a total of $10,000 depending on where you live.

Even just here in my home county of Mimosa County, property taxes could exceed $10,000 and you’re not living in the richest town in the county by far. It’s just what the property taxes are.

Retire filers, people who are retirees whose SALT is less than $10,000, but there’s no change stemming from this, they should still by the way consider the advisability of choosing itemization versus standard deduction.

If you are having your SALT number be above that, by the way there’s a lot of people in these high‑tax states ‑‑ California, New York, New Jersey ‑‑ this cap likely had a significant repercussion for three reasons.

First, if your total is considerably more than $10,000, then you lost one of the financial incentives to own a home. You will no longer be able deduct all of these taxes which may make owning a property less appealing in the future.

Second, these SALT taxes and the cap on them may make downsizing more desirable for homeowners in high‑tax jurisdictions.

Therefore, property taxes which usually depend with the size of the real estate ‑‑ For instance, a 700 square foot condo is likely to be assessed considerably less in taxes than a 15,000 square foot mansion ‑‑ if that happens, retirees with high property taxes may end up looking hard at whether or not their property footprints is where they want to be.

There’s a whole academic‑economic discussion about what the impact of that is going to be, whether it’s an incentivized movement off of this.

Nowadays, most of the reports suggest the new raisers of children, the new young people that are coming in are not at all interested in a whole buying into these larger properties with the bigger footprint in the higher taxes, which means that we may see an inventory glut of retirees that are either trying to downsize and can’t, because they can’t sell it, or have downsized and it’s just something that’s vacant.

Third, it may be less appealing to live in states with high taxes, because there are states that have no state income tax at all. If you’re interested in them, they include things like Alaska, Florida, Nevada, so far so good.

We can do the cruise in Alaska, we can get the warm weather in Florida, we can go gambling in Nevada, but then we’ve got South Dakota, Texas, and Washington. I don’t know, not really interested in those myself, but they exist. There are also states that vary widely in the amount of property tax in the sale sects they’re assessed.

In the wake of all of these different factors including the new cap on SALT, all of these levels may receive increased scrutiny as a factor in the real‑estate desirability, meaning many retirees who think about moving to eliminate the maintenance cost of large properties to live near their growing children, but they don’t make the move, because it’s too much of an upheaval to their lives. There’s lots of reasons why that could be.

The SALT cap could be an impetus to making that thought largely a reality, especially if the state of your dreams, where you want to go, has more favorable taxes. It may be the thing that pushes you over to getting into that next place and just moving into that next state.

Couple of other changes on there, taxpayers may in fact be able to deduct more for healthcare expenses. For the last several years, tax filers could itemize and deduct their healthcare expenses that totaled more than 10 percent of their Adjusted Gross Income, that’s AGI. That’s a particular line item on your 1040.

Under the new tax law, they’ve lowered the threshold. Healthcare cost are now deductible if they exceed 7.5 percent of your AGI, and its increased deduction potential was made retroactive for 2017. Maybe you took advantage of it, filing last year.

By the way, if you’re unsure about how to get there, AGI is calculated by totaling all of the income for the year. Your wages, bonus, dividends, distribution from IRAs, then subtracting your allowable adjustments such as contributions to retirement count, alimony, things like that.

AGI, which I said is found on the 1040 form, is the amount from which deductions are subtracted. Because many deductions depend on percentages or totals of the AGI, this amount is very significant when for tax purposes. That number means a lot of things.

For example, if your AGI was about $65,000 in 2016 when there was the old law, you would have to have needed healthcare expenses that exceeded $6,500 to use the healthcare deduction. Under the new law, if your AGI is still $65,000, you can deduct if your healthcare expenses are just $4,800 or so. You can see that the threshold is lower.

This increased potential deduct affects retirees more than other people, because they tend to have higher healthcare expenses. I know that there is a figure that was thrown out recently, but I was reading from an NGO, a non‑profit called the Employee Benefit Research Institute.

Basically, what they were saying is that a couple needs about $400,000 saved by age 65 to meet their healthcare cost need alone in retirement, roughly estimated about $20,000 per year of out‑of‑pocket over 20 years.

When you look at that you will now have a new number that you can go against for retirees. The idea here, again, is in order to take advantage of the itemized deduction, you’re going to need to have deductions that exceed your standard deduction. That’s one of those things that was increased.

Even though, we got a greater number for that the fact that itemization is possible and healthcare expenses are something that’s deductible, when the math just figures out it may not work in the end.

I have a couple more tips for you in terms of tax planning. Let’s take a quick break here though.

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Victor: When I come back I want to talk to you about an opportunity that I have specifically for women who are encountering retirements. If you are one of these cherished individuals, listen when we come back from the break because I have an opportunity for you that you are not going to want to miss. We’ll be right back after this quick break.

Announcer: Imagine if the attorney you trust to protect your legal interests could also be trusted to protect your retirement wealth. One trusted advisor to all fiduciary roles, Victor J. Medina.

Mr. Medina is an estate‑planning and certified elder law attorney with a national reputation. He is also a certified financial planner professional. Through his law firm and independent registered investment advisory company, Mr. Medina provides 360‑degree wealth protection strategies for individuals in or nearing retirement.

His unique approach offers advantages to high‑wealth individuals seeking conservative advice and a professionally‑managed approach to their retirement wealth.

Learn more. Call 609‑818‑0068. That’s 609‑818‑0068, or listen to the newest episode of Make It Last Radio, Wednesday mornings at 11:00 on 1450 Talk Radio.

Victor: Everybody, welcome back to Make It Last. Today, I’m talking to you about different changes that are coming up into the newest tax law, and how they’re going to affect retirees.

I did promise the women in the audience about a good opportunity that’s going to be coming up in the future. I want to talk to you about that, before we keep going on the tax changes and what they mean for retirees.

We’re actually going to be hosting two seminars about empowering women in retirement. What we’re going to be doing is on May 9th at one o’clock, or May 14th at 6:00 PM, one of those two times here in our Educational Resource Center.

What we’re going to be doing is, we’re going to be hosting a seminar that is specifically focused on inspiring women in retirement. Whether you’re single, married, divorced, or widowed, I’m telling you that this is a must‑attend event for you.

Here are the facts, 90 percent of women will eventually be fully responsible for their household finances. The statistics show that only 20 percent feel prepared.

What we’re going to be doing at this event, which is absolutely free to the community, is we’re going to be learning the importance about an income plan that works regardless of market volatility. We’re going to be discovering ways to identify and reduce the amount of risk in your investment portfolio.

We’re going to understand social security pitfalls to avoid, and how to maximize the benefits that have been earned by your wages and your income. We’ll be identifying sources of income and strategies to help ensure that running out of money is never an option.

We’re going to understand the importance of a legacy plan designed to help ensure that the IRS isn’t the largest beneficiary when your spouse dies, or when you eventually die. We’re going to have a few things that you’re going to be walking away absolutely with.

You’re going to learn five things that women need from a financial advisor, how to avoid the built‑in tax height that women will experience if they outlive their husbands? We’re going to uncover two risks already inherent in your portfolio that most people don’t even realize.

Five reasons where retirement planning is different for women, what women need to know about social security, specifically survivor and spousal benefits, and what married women need to know about retirement now if they anticipate outliving their spouse?

This is going to be one of the most important sets of seminars that we put on. We’re really excited because on the heels of this, I’m going to be publishing a new book called “Empowering Women in Retirement” part of the Make It Last brand. That is set to publish about for May 30th.

We’re really excited that we will be launching that. The seminars that are going to be really inspired by the book go off on May 9th at 1:00 PM, or May 14th at 6:00 PM. If you’re interested in attending, what I need you to do is go ahead and text the word, “Seminar” to 609‑554‑5936. Well, it’s not “Seminar.”

Excuse me. It’s “Invite.” If you text the word, “Invite,” to 609‑554‑5936, we’ll know that you are interested in one of our seminars, and we will reach out to you and get you registered for this. This is a limited space.

We’re going to be going deep into these subjects. It’s going to be hosted here on our Educational Resource Center. Again, Thursday, May 9th at 1:00 pm, Tuesday, May 14th at 6:00 pm. This is specifically for inspiring women in retirement. It is a must‑attend event. I’m interested in seeing all of the people that are coming there, excited to give that presentation.

I want to get back to the tax planning stuff that we were talking about. When we left, we were largely talking about the way healthcare expenses had changed in its deductibility. We were going in there and saying, “OK. Great. We’re going to have essentially lowered thresholds for that. You can now deduct to a newer healthcare expenses exceeds 7.5 percent.”

We did talk about whether or not that would be all practically valuable to people because the itemized deductions are only going to take place once we start to exceed our standard deduction. A few other changes on that.

One of the changes is that the tax rates are lowered in most brackets. Tax rates are lowered almost across the board on the new tax law. As a result, retirees will pay less in taxes depending on where their income is.

In other words, for the same income as they had last year, they’re going to end up paying a lower tax because the way brackets have changed. As a result of that, by the way, understand that we’re talking about numbers in the abstract.

$50,000 in adjusted gross income for the year before may not be the same as $50,000 in adjusted gross income this year or taxable income because, at the end of the day, the way that we deal with deductions will have changed.

From that perspective, we don’t know, for sure, that people are going to be paying less taxes but the law has changed the bracket. There are seven tax brackets now in the new tax law, which, by the way, was the same numbers they were in 2017.

There are two numbers on that that are important. One are the tax thresholds, that is to say, the amount of money that brings you up to the top of that bracket, for whatever reason, as a matter of how much tax you’re going to pay.

For instance, you’re going to look it from say $0 to $19,050. For people that are married, if they’re anywhere in there, their tax rate is 10 percent. People who are between $19,000 and $77,000 are going to be in a 12 percent bracket. That next numbers, sort of, a marginal tax on that.

That’s changed because what was 15 percent in the old law is now 12 percent. What was 25 percent in the old law is 22 percent. You can find the whole chart on this online. It would be boring for me to read through each of the numbers. You’re not paying attention to that anyway.

Because at the end of the day, what you’re trying to do, and this is a big thing within our financial planning services, is you want to be proactive about your income tax planning. What I mean by that is that knowing with certainty what your tax bracket is, is definitely one of the advantages that you have for how to manipulate the money that you own and the taxes that you pay on that.

One of the things that we’re going to talk about in the seminar that we’re hosting for a client, for lunch and learn, which I opened the invitation up to you all. You’re welcome to come to that on April 29th. Proactive tax planning is to say, if the tax law is set to sunset, either in terms of the laws over the course of the 10 years, it’s at the sunset.

Those rates are going to go back up, which by the way, they are. They’re going back up, just by the rules of the law itself. If that’s going to end up happening, perhaps this is the lowest rate that you’ll see for a while.

If that’s the case, steering into the turn, [laughs] I almost screwed that one up. Steering into the turn, so that you can elect to be paying more in taxes but a rate that you guarantee might actually be super smart planning.

You can do different things with that money, by the way. You don’t necessarily have to spend it. In fact, most people are not going to want to spend it, but you can do the things like begin to plan for inheritance.

If it’s a lot of IRA money that you’re moving out of here and using that to fill up the rest of that tax bucket, one of the things you’re doing is locking in the tax rate at something lower than maybe what your kids are going to end up paying in the future. That’s one of the reasons Roth conversion or others again.

In the seminar we’re going to go into a lot of detail about that. We are going to line all of those things up and show you how to use that planning. There’s inheritance planning. There’s using zero tax brackets for what you have. There’s tax‑free, the power of zero. We got a lot of things that we’re going to cover in the proactive income tax stuff, how to manage dividends.

In this case what we’re looking at is the fact that the lower tax brackets mean that we can lock in a particular rate for whatever we’re paying. That of course will help us for it as well. There are often questions about the new tax laws that we probably should answer here real quick if we’re doing a good thorough job on reviewing the tax law.

People want to know whether or not the taxes on investment gains and investment income change, because a lot of people have money saved and/or invested. They want to know whether or not as a retiree the taxes are going to change in that.

Look, the short answer for that is, no. The same rules exist for short and long‑term capital gains qualified and ordinary dividends and interest income. By the way, those are all the same. The rules for tax losses are also left unchanged. People will be able to harvest tax losses against tax gains assuming they were talking about the same category.

There are some rules around that but none of that is really been affected by the new rules. Even though that in second tax bracket has dropped from 15 percent to 12 percent, the capital gains rate for similar income is still 15 percent. That’s still the case on qualified dividends and capital gains.

By the way, I am also very fond of being out in the world and saying, “Hey look, capital gains isn’t just one rate. It is three rates. One of those three rates is zero. How can you use the zero rate to help you with your planning?”

I want to talk to you a little bit also about the impact of this to social security. For many people, social security is one of those moving targets for how much is taxed. The short answer by the way, is that the new rules do not change the taxation of social security benefits.

Under the last set of rules and the current set of rules, social security benefits are subject to Federal income tax above certain levels of combined income. The combined income generally consists of AGI, nontaxable interest, and one‑half of your social security benefits.

What has changed however, there was the applicable tax brackets off of that. The new law lowered most of the tax rates and adjusted the income tax thresholds like we talked about. It could be that the overall taxes lowered, but the taxes paid on social security are essentially calculated the same way.

You’ve got three different brackets, three different ways that your social security benefits may be taxed. They may be taxed at zero. If your combined income as a married couple filing jointly is less than $32,000, your tax on your social security income is zero. None of that is taxable.

If your income is in very short window between $32, 000 and $44, 000, you could get up to 50 percent of that as taxable. If your income is over $44,000 as a married filing jointly couple or $34,000 as a single, up to 85 percent of that may be taxable.

The shorthand for this is that the more income you have from other sources, the more likely it is to be that your social security is in fact taxable. We’re going to be looking at those numbers, and you’re going to want to be carefully dancing around how much are you taking out of your IRA?

Maybe you’re doing it as a function of some proactive income taxes planning that we’ve been talking about. Maybe that’s part of what you’re doing, but you’re going to want to look at a couple of different land mines on that and make sure you don’t step on them.

One of them of course is the trigger for getting over a certain amount of taxable income, and therefore getting very quickly a higher rate of social security that’s taxed. The more income you get from some other source, the more your social security may be taxed. You may be doubling up on the rate of that’s increasing there, so you want to be careful with that.

The other one is the Medicare premium. There are rules around how much of your Medicare premium you’re going to be paying of that rate. That number is driven by your modified adjusted gross income. That’s a number a little bit higher up on the 1040. It’s usually a bigger number for most people. That MAGI is a number that is going to drive your amount of your Medicare premiums.

By the way, that one’s a little sneaky because it’s not going to be a direct change from year to year. Your Medicare premiums are set on your modified adjusted gross income for almost two years ago depending on what you’re paying for that.

For say 2017, 2017’s modified adjusted gross income is determining 2019’s Medicare premium. Those two things are working together for that. That’s basically it for our tax planning tax tips. Excuse me, for the newest set of tax laws.

If you are interested in learning more about this and then getting ahead of the curve, the best thing that I can do is offer for you the opportunity to attend our clients only lunch and learns. I’m going to open this up for non‑clients. This is April 29th at 12 o’clock. Very light lunch was going to be served, probably some cut up sandwiches.

We’re going to be taking you and 35 of your closest friends. I’m kidding. We’re going to be in our Education Resource Center here. We’re going to be going through ways to proactively plan for taxes in 2019. We’re going to plan for next year’s taxes this year.

If you’re interested in joining us for that, the way to do that is to go ahead and text to the word invite, as they say invite me. Text that word “Invite” to 609‑554‑5936 and then what we’ll do is, we will reach out to you and we’ll put you on the calendar.

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Victor: If there’s space, invite you in to our Educational Resource Center here and then talk to you about how to plan for next year’s taxes. We would love to meet you that way.

Listen. We’re going to take a quick break. When I come back, I’m going to talk about seven deadly sins of retirement planning that baby boomers commit and do it all the time. You’re not going to want to miss this one. Stick with us. We’ll be right back after this quick break.

Announcer: Life is better when you have your legal ducks in a row. One area attorney can help you get your financial ducks in a row as well. Victor J. Medina fills dual fiduciary roles, an estate planning and certified elder law attorney, and also a credentialed certified financial planner professional.

Learn more about Victor’s 360‑degree wealth protection strategies. Call 609‑818‑0068. That’s 609‑818‑0068, or listen to the newest episode of Make It Last radio, Wednesday mornings at 11:00 on 1450 Talk Radio.

Victor: Hey, everybody. Welcome back to Make It Last. I hope you enjoyed those first two segments on tax planning. As I said to you, I’m really excited to offer the client lunch and learn, where we’re going to go deeper into this and really provide a benefit for how you can be doing tax planning ahead of time.

If you’re interested in joining us for that, the way to do that is to text the word, “Invite” to 609‑554‑5936. If you do that, we’ll reach out to you and if there’s space, we’d love to welcome you here on April, 29th, around noon, for that proactive income tax seminar.

Listen, what I wanted to talk to you today about, with the balance of the show, are seven deadly sins that baby boomers commit on retirement planning. Here’s the thing. A new survey is starting to unearth why millions are unprepared for retirement.

The lights have been green for baby boomers their entire life. Baby boomers, by definition, were born just after World War II, just after what we defined as the Greatest Generation. They were born between 1946 and 1964. They were raised during the largest, most sustained economic boom in human history. They were sent to college and grad school by doting parents when it was still cheap, or by the way, nearly free.

Then when they went out to work they were able to accumulate stocks, bonds, real estate, just as prices began to skyrocket, meaning that the value of what they acquired has risen so significantly that they are enjoying not a lot of grit in terms of their working and financial life. By the way, the Dow Jones was just a thousand in the 1980s when baby boomers were first entering the workplace.

After all of this good luck and good fortune, where are they? Well, this new study has the numbers, and they aren’t pretty. The Insured Retirement Institute, a trade body for annuity industry, did an annual study. What they were focusing on was the boomer expectations in retirement.

The numbers are shocking, the reading is shocking. Most baby boomers are unprepared for retirement, even as they approach or enter it. Barely 1 in 10 has enough saved up. By the way, this is hardly the first study to report on Americans’ poor retirement savings.

We’re always seeing new things, talking about how little financial stewardship we’re actually performing as a society. We tend not to be planning for the future, not to be planning for rainy days. It’s just not in our make‑up, and it’s very difficult behaviorally to do some postponement of gratification, and then be planning for some time in the future.

This study stands out because it focused specifically on boomers. They interviewed about 800 or so people aged somewhere between 56 and 72. In a nutshell, based on their numbers, about 11 percent of $500 000 saved for retirement. It’s not a king’s ransom, it’s good amount of money.

When you start to do the numbers on withdrawal rates, and remember that so much of the crunch of what is a retired person’s struggle, is around the idea that they don’t have a defined benefit plan, unlike their parents. We did away with pension plans and guaranteed income. They’ve got to rely on this money, plus their social security, as basically being it, for what they have.

Only 11 percent have at least $500,000 and the remainder don’t even have that. About half of the people in this study aged 56 to 72 have no retirement savings whatsoever. None. Zero. It is crazy. There’s a good piece of news that comes on the heel of it that makes it sound even worse. Which is, half of those who make it to their early 60s, will live past 85. How they’re going to get by without savings is anybody’s guess.

The fact that we are able to keep people healthy for longer and longer definitely means that, if they don’t have enough money, there’s a problem that we’re going to have to solve.

Financial services about retirement planning are generally produced by organizations in the financial services industry and naturally they have a point of view. The IRI, which is the Insurance Research Institute, they represent annuity providers.

The survey results suggest that, all in all, more people really ought to buy annuities when they retire. That’s what they’re trying to do that. Make of it what you will. I don’t have any problem with annuities as part of a retirement plan.

I’ve been on record about that. I think they should exist. I think we should be product agnostic. We shouldn’t throw the baby out with the bath water.

There are places for really strong products in each one of the different categories. Even if you’re willing to discount that conclusion that you should be buying an annuity, the study is useful all the same because among the benefits, it shoos an astonishing number of sins of retirement planning that have led to this dismal situation.

What I’m hoping to do is that if you are a listener still with time on your hands or maybe you’re a parent wanting to impart wisdom to your kids, we can list out things not to do when planning for your retirement, things to avoid.

The first thing that we want to make sure that we avoid is deadly sin, is not saving enough for anything. Yes, it’s the most obvious, but it’s worth repeating. As we said, about 23 percent of the baby boomers have no retirement savings and never did. That’s really important to know. It means that, behaviorally, we have to begin on savings.

I have talked to you about this in the past. I’m going to get up on my soapbox, you’re going to hear me get passionate about this. Saving more in retirement has a dual benefit. The first most obvious benefit is, in fact, that you’ll have money. Hallelujah, you’re going to have money. That’s really, really important.

The other consequence of getting into retirement savings is you’re going to be living a lifestyle that is less than what you’re making. You’re going to be used to surviving on a number that’s less than what you’ve brought in, which means that when you get into retirement you can learn how to live on that lower number.

I had clients come in the other day. They are delightful. They are some of my favorite clients. We had a conversation about their budgeting. Because they’re going to have to ratchet down their lifestyle in order to meet their life expectancy goals for it. They saved. They worked to be able and save, but they got used to living a little bit too much. We needed to ratchet that back.

Sin number two is draining your retirement savings. In the survey, what was uncovered was that 17 percent of the individuals did save for their retirement once, but they spent the money, either in desperation or carelessness, maybe both.

What we set aside should be out of sight, out of mind. It should be sacred and not touched because that’s the money that’s in there for the future. We don’t have any way of making that up, so we don’t want to drain our retirement savings.

The third one is not calculating your retirement savings goal. It’s going to be a lot harder to save for retirement if you haven’t, at least, tried to work out how much it’s supposed to be. By the way, I wouldn’t work off of the numbers that are being published out in the world.

I remember Suze Orman talking about how recently you need $5 million. Of course, that is ludicrous. People don’t need that. In fact, there’s a couple of shows ago. I remember we talked about how to get to that number.

A plan, definitely, is helpful. There were 25 percent of baby boomers in the study who do not have a financial advisor and didn’t try to run the numbers. By the way, even 25 percent who do have a financial advisor still haven’t set the target, which begs the question for me, “What is that advisor doing for you?”

[laughs] This is base level. They’re not sitting there with an abacus and trying to calculate this on their fingers. There’s software for this. We use the software all the time as a marker for how much, not just in savings, we should be targeting, but how much our savings will actually last.

Retirement savings is almost like it’s the lay‑up for us. We have other things that we need to be doing but looking at the targeted goal is one of the first things you ought to be looking at. Definitely, evaluating your life around the idea of, “Is your financial advisor doing this base level thing for you?” Yeah, that’s one of those things you should be doing.

Another sin is underestimating the health costs. As I told you in the earlier segment, there was an analysis that said you’re probably going to end up about $400,000 or so for a couple in their 60s to pay for all of their healthcare. That includes supplementary insurance, copays, and other out‑of‑pocket expenses.

If you’re interested in learning more about where those might come from, the last show that we did, last week’s show, ended up covering Medicare and why you should not rely on Medicare for all of your retirement healthcare costs and needs.

By the way, if you missed last week’s show, good news. We simulcast this as a podcast. If you’re not sure what a podcast is, ask your grandchild. They’ll hook it up on your phone for you. You know that phone that you’re really not sure how to work all the way or the iPad? They’re going to do that.

Say, “I heard about this podcast, I listen to this radio show. It’s called Make It Last. Can you get subscribed to that?” When you do, the subscription will not only give you basically every episode going forward, but you guys should dial back. Go back to last week, and learn a little bit about the Medicare system and why you need to be budgeting for higher healthcare costs.

Here’s the thing that the survey came out. Most near‑retirees don’t have a clue about how much they’re going to need for healthcare. According to the survey, more than half of the baby boomers think that their healthcare costs will come to less than 20 percent of their retirement income.

More than one in four thinks that it’s going to come to less than 10 percent, when the number is actually much higher than that.

Related to that is going to be ignoring long‑term care costs, so 70 percent of those in their mid‑60s are going to need long‑term care. The average cost per year is $89,000, according to the most recent survey. So, who’s going to pay? Well, if you ask the people in the survey, Medicare is going to pay. No. Folks, Medicare does not pay for long‑term care, not a nickel.

We’re going to have to budget for long‑term care costs outside of that. If you’re going to need some form of long‑term care, you only have a few ways of addressing that. You can buy a long‑term care insurance plan, you can rely on Medicaid or the VA plan, which is going to require legal planning to do that.

Or, you can self‑insure with a whole boatload of money that will basically meet your need. By the way, if you’re a couple, double that, right? It’s going to be important for you to think about long‑term care costs and addressing them. We tend to favor either the legal planning solution or the long‑term care insurance solution because most people of reasonable net worth can’t self‑insure on this.

We do management for people that have millions of dollars, yes, that’s true. For people that are well into the seven figures, perhaps they can get away with it. But the average folks, you and me, the people that are just maybe a million dollars, probably less than that, it’s going to be difficult for them to self‑insure on that.

Carving out a portion of their portfolio that can attend to long‑term care costs becomes one of those ways that we can help plan for that. Again, the deadly sin is to ignore it.

Two more. Mishandling your retirement date. We’re going to be going to the survey for this. About 29 percent of those aged 62 to 66 have postponed retirement. A remarkable one‑third, or 33 percent, of those who are aged 67 to 72, OK? On the one hand, some people have been forced to postpone retirement because they couldn’t afford it.

On the other hand, others overestimate how long they’ll be able to keep working. But 31 percent of boomers predict that they’ll work past 70, but studies show that fewer than 10 percent actually do. There are a number of reasons why this is the case.

Traditionally, retirement has been that point in time in which you are physically unable to perform the work that you’ve been performing in the past. If you’re somebody who works in manual labor, or somebody who works outside of the knowledge work base, where you can sit at a computer, this will face you because you will be physically incapable of performing your job.

We’ve got clients here that are maintenance workers for a school district. At the end of the day, strong as they are, their body begins to fail them. Retirement date is sometimes dictated to us, even though we’d like to be able to control it.

The other things that can happen is that people can perceive that they’re capable of doing their job, but the way that their job is done is blown by them.

This, by the way, in full candor, happens in my company, as well. What we find is that those people in an older generation who we would love to be able to employ, tend to lack some of the technological skills around computers, database management, working paperlessly, that we really need in order to serve our clients.

A lot of things can affect whether or not somebody is capable of dictating their retirement date. But most people, if you look at it in terms of the way the percentages add up, you get over to 50 percent on both of those numbers, those people mishandle their retirement date. Mishandling the retirement date can have a significant impact.

In other words, if you think that you’re going to keep working, and therefore, your draw on your retirement is going to start later, but you’re wrong, [laughs] then you’re going to need money for a longer period of time.

Then, finally, the last one is not setting affairs in order. This really is where the marriage of legal and financial planning comes together. Two‑thirds of the baby boomers have taken no steps to protect themselves if they suffer diminished capacity or dementia. They haven’t spelled out their wishes for their end‑of‑care and end‑of‑life.

They haven’t certed out a power of attorney if one is needed. Anyone who has been through this process can tell you, the chances are pretty high that if you wait to do this stuff until it’s needed, it’s going to be too late. I say to people, “Look, if you’re waiting to draft your power of attorney until you need it, it can’t happen.” It’s physically impossible.

If we look at ways to set things up, there are a number of elements to this planning that are important. We need to have the legal documents, but we also need to have conversations with the world around us, and let them know, where do the documents exist? What are your wishes?

What are you looking for as you face retirement or if you get diminished capacity, what kind of care are you looking for? All of those things are important. They’re all important elements of making sure that you get the result that you want and deserve after a lifetime of hard work. But you have to do the planning ahead of time.

Those are the seven deadly sins of retirement. If you’re looking for additional information on that, what I can do is, I can offer you an opportunity to learn some more information. What we have in terms of top retirement planning issues, is a report that we have created.

If you text the word “Retirement,” R‑E‑T‑I‑R‑E‑M‑E‑N‑T, text the word “Retirement” to 609‑554‑5936, we will send you out a report that will go over the top retirement planning issues and go over those things with you, and give you that information.

Look, we’re ready to wrap up for today. Remember, we’ve got two offers for you, two things that you can come and join us. The first is April 29th, if you’re interested in attending, our client‑only workshop. I’m offering that just to you, the radio listeners and podcast listeners, if you want to come in and join us on April 29th at noon for how to plan for next year’s taxes.

Text the word “Invite” to 609‑554‑5936.

Again, if you are a woman, divorced, single, married, widowed, whatever it is, we have two seminars for you in May. It’s going to be May 9th at 1:00 PM, which is a Thursday, or May 14th, at 6:00 PM. Again, just text the word “Invite” to 609‑554‑5936. This is one of the most important seminars that we will be giving.

Finally, one more thing before we wrap up for today. Those of you who know me personally and know me as your advisor, know that I like to sing a cappella. I’m in part of an a cappella group.

[background music]

Victor: We’re actually going to be holding a concert on April 27th at 2:00 PM at Pennington Presbyterian Church. It’s absolutely free. It’s about an hour.

If you’d like to have something that you can hold over me because you’ve seen me embarrass myself singing on stage, you can come to that concert. This has been a full show for this week. I want to thank you for joining us. Join us next week on Make It Last. We hope you keep your legal ducks in a row and your financial nest egg secure. Bye‑bye.

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